Heterogeneity of Bank Risk Weights in the EU: Evidence by Asset Class and Country of Counterparty Exposure

June 9, 2017

Preview Citation

Format: Chicago

Rima A Turk. Heterogeneity of Bank Risk Weights in the EU: Evidence by Asset Class and Country of Counterparty Exposure, (USA: International Monetary Fund, 2017) accessed November 21, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

Concerns about excessive variability in bank risk weights have prompted their review by regulators. This paper provides prima facie evidence on the extent of risk weight heterogeneity across broad asset classes and by country of counterparty for major banks in the European Union using internal models. It also finds that corporate risk weights are sensitive to the riskiness of an average representative firm, but not to a market indicator of a firm’s probablity of default. Under plausible yet severe hypothetical scenarios for harmonized risk weights, counterfactual capital ratios would decline significantly for some banks, but they would not experience a shortfall relative to Basel III’s minimum requirements. This, however, does not preclude falling short of meeting additional national supervisory capital requirements.

Subject: Banking, Capital adequacy requirements, Credit, Credit risk, External balance assessment (EBA), External position, Financial institutions, Financial regulation and supervision, Money, Mortgages

Keywords: Bank, Bank Capital, Bank portfolio risk, Bank risk measure, Basel III, Capital adequacy requirements, Capital framework, Credit, Credit exposure, Credit risk, Europe, External balance assessment (EBA), Global, IRB portfolio share, IRB risk weight, Market risk share, Mortgages, Portfolio risk weight, Regulation, Risk, Risk component, Risk weight, Risk Weights, Risk weights capture, SA portfolio decomposition, WP

Publication Details

Pages:

48
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2017/137
Stock No:

WPIEA2017137
ISBN:

9781484302958
ISSN:

1018-5941

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